Bankruptcy Basics Week 4: What is Chapter 11?

Chapter 11 is a very complicated form of reorganization bankruptcy that is designed to be used primarily by business entities that wish to restructure their debts. However, Chapter 11 is also used by individuals that wish to reorganize their debts but have too much debt to qualify for Chapter 13 bankruptcy. If you have more than $383,175.00 in unsecured debts (such as medical bills, credit cards, and student loans) and/or more than $1,149,525.00 in secured debts (such as mortgage loans and debts secured by a vehicle), you do not qualify to file for Chapter 13 bankruptcy. I try to avoid having my clients file for Chapter 11 when possible because it is a very time consuming and expensive form of bankruptcy to pursue. We typically try to find ways for people to qualify for Chapter 13 if reorganization bankruptcy is the best path. One possible way to accomplish this is through a Chapter 20 filing, where my client files for Chapter 7 bankruptcy first. Since the unsecured debt is discharged through Chapter 7, my client can then file a follow-up Chapter 13 case as soon as the Chapter 7 case is discharged to specifically address the secured or priority debts that Chapter 7 may not have covered. For businesses, we strive to work out resolution of the debts directly with the creditors that may be pushing the business into bankruptcy rather than file a Chapter 11. However, there are situations where Chapter 11 is the only answer, such as when a business is facing the seizure of assets by a creditor and the creditor refuses to negotiate. The automatic stay that is provided by the bankruptcy court when a Chapter 11 is filed can give the business the protection needed to preserve possession of assets and cash. Recovery of these assets, once forcibly taken by the creditor, can be very challenging (if not impossible). If your business is facing attack from aggressive creditors, we can help. Please call us to schedule a free first appointment as soon as you believe that trouble is on the horizon.
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